Global indices: crack under bear attack

It wasn’t just the Indian market that suffered at the hands of the bears. Global indices cracked as well, even the few that have been showing remarkable resilience so far.

Our trouble-shooting Finance Minister was quick to state that Indian markets were only feeling the effect of a global sell-off, and there was no reason to panic. Those are mere words to shore up our falling market.

The time for soothing words is long over. It is time for action. Tough policy decisions – however unpopular – need to be taken and implemented. Soon. Bears are about to take complete control.

Here are the 6 months closing chart patterns of a few global market indices:

Shanghai Composite China

The Shanghai Composite index has been trading sideways ever since it dropped below the 200 day EMA back in Apr ‘10. It has once again dropped below all three EMAs. Last Friday’s fall has no special significance for a index already struggling to keep the bears away.

Australia All Ordinaries

The Australia All Ordinaries index has been in a down trend since Apr ‘11. The ‘death cross’ of the 50 day EMA below the 200 day EMA in Jun ‘11 confirmed a bear market. Friday’s panic selling has pushed the index deeper into bear territory.

DAX Germany

Except for a few days in Mar ‘11, the DAX index had been in a bull market – trading above a rising 200 day EMA - till Jul ‘11. The index slipped below the 7000 level and the 200 day EMA on Mon. Aug 1 ‘11, and continued to fall through the past week. The ‘death cross’ will confirm a bear market.

Madrid General Spain

The Madrid General index has been in a bear market since May ‘11, making a pattern of lower tops and lower bottoms. Things were bad. They have just turned worse.

IBOVESPA Brazil

The IBOVESPA index has been trending down in a bear market since Apr ‘11. Last week’s selling has pushed the index below a downward sloping channel.

MERVAL Argentina

The Argentine MERVAL index had been trading with a slight downward bias, but stayed above a rising 200 day EMA till Jul ‘11 (except for a few days in Jun ‘11). Friday’s huge drop has changed the equation in favour of the bears.

Are the PIIGS stock market indices ready for slaughter?

Europe’s economic recovery has been largely restrained by the PIIGS countries. Greece is almost a basket case. Ireland is not far behind. Their stock index chart patterns reflect the sorry state of their economic affairs. Portugal, Italy and Spain seem to be tottering on the brink.

Spain (Madrid General)

Spain’s Madrid General index has been struggling to stay above its 200 day EMA. Each foray above the long-term moving average has met selling pressure. The index appears to be consolidating within an ascending triangle since June ‘10, with progressive higher bottoms and a flat top around 1135. The technical indicators are bearish, so the down move may last a bit longer.

Greece (Athens General)

Greece’s Athens General index started a rally in Jan ‘11 that took it above the 200 day EMA after 9 months. But the rally fizzled out after touching a high of 1747 in Feb ‘11. Note that the 50 day EMA didn’t even move up close to the 200 day EMA, and the bear market has resumed in right earnest. The technical indicators are looking very bearish.

Ireland (Dow Jones Ireland)

Ireland’s stock index is working hard to remain above its 200 day EMA. A steady rally from the low of 165 in Aug ‘10 to the high of 196 in Feb ‘11 faced strong selling pressure and dropped to a low of 173 in Mar ‘11. A ‘V’ shaped recovery took the index to a lower top of 193, where a sideways consolidation has started. All three EMAs are bunched together and the technical indicators are hinting at a continuation of the rally.

Italy (Dow Jones Italy)

Italy’s stock index is technically in a bull market, but facing strong headwinds. After touching a low of 141 in May ‘10, the index has been in a bullish pattern of higher tops and higher bottoms. The technical indicators have turned weak, and a test of support from the rising 200 day EMA is likely.

Portugal (Dow Jones Portugal)

Portugal’s stock index is also in a bull market technically, but after reaching a peak of 214 in Nov ‘10 it has been trading within a bearish pattern of lower tops and lower bottoms. The 200 day EMA is still rising, but the index closed just below it. The technical indicators are bearish, which means the correction may continue for some time.